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Faculty Debates Lessons from Enron's Collapse
In early April, nearly ninety HBS faculty members came together for a half-day symposium on Strategy, Values, and Governance in the Rise and Fall of Enron. Organized by the School's Division of Research and moderated by Professor Krishna Palepu, senior associate dean and director of Research, the unprecedented session brought together faculty with expertise in all aspects of business for a far-reaching discussion of the fallen corporate giant.
Palepu opened the discussion by stating the afternoon's objectives. Together, we will try to make sense of what happened to cause the most spectacular corporate failure in modern capitalism. Was this an aberration? he questioned. Can we draw lessons that can be applied to other corporations? What are the implications for our research and teaching? Dean Kim B. Clark also spoke at the beginning of the proceedings, describing the event as a way to explore together and learn from this watershed issue. The fall of Enron is an event with ramifications not only for how business will be conducted in the future, but for how business should be taught at institutions such as ours. I hope this discussion will stimulate new thinking about how and what we teach at Harvard Business School.
Because the symposium drew on unpublished research — some of it confidential or compiled in the wake of the company's collapse — faculty members spoke off the record. There were four sessions: Was the Failure of Enron the Result of a Flawed Strategy?, led by Professors Joseph Bower, David Garvin, and Michael Roberto; Why Did Investors Support Enron So Enthusiastically for So Long?, conducted by Professors Paul Healy, Amy Hutton, and Krishna Palepu; Professor Jay Lorsch's perspectives on Why Did Enron's Board Fail in its Governance Function?; and What Role Did Flaws in Organizational Systems and Values Play in Enron's Downfall?, a discussion led by Professors Thomas Piper, Malcolm Salter, and Robert Simons.
The lively and informative presentations were punctuated by questions from faculty eager to share their own insights or to challenge colleagues' assumptions. The group worked together to assemble the pieces of the Enron puzzle. How could a company with a 64-page code of ethics and an espoused belief system that stressed respect, integrity, and communication end up in such a situation? How could an innovative business model that showed so much promise have gone wrong so suddenly? Why did Wall Street and institutional investors persist in supporting the company's stock, which one professor described with a raised eyebrow as mighty highly priced? How did Arthur Andersen's role at the company become so entangled with its own self-interest? What could Enron's board of directors have done differently? Did the widespread enthusiasm surrounding the company's success create an emperor's new clothes scenario, where those who did raise questions were dismissed out of hand? What role did deregulation play? Did a perfect stormlike convergence of unlikely factors overtake the company, or is what happened to Enron a plausible outcome for other 21st-century firms?
An underlying question throughout much of the debate centered on whether the company's downfall resulted from a failure of values or of systems — both inside Enron and in the capital market institutions — with convincing evidence presented on both sides. At the end of the day, there emerged a general consensus that Enron's demise was what one faculty member characterized as a creeping disaster that can only be understood when it is viewed through a variety of lenses. I think it's safe to say, posited Professor Rosabeth Moss Kanter near the end of the discussion, that the problems that brought down Enron were incredibly complex. One reason this happened was that nobody was able to see the whole picture at once until after the fact.
Dean Clark agreed. Our discussion today seems to indicate that there were moments in time when things might have gone differently had Enron's leaders and the leaders of organizations that worked with Enron acted with a different set of values and purpose. Encouraged by the afternoon, Clark announced plans for an Enron session for MBA students later in the spring and said he would create opportunities for further faculty deliberation on this and other important and timely issues.
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